America's Real Poverty Rate

If the United States were to update the way we measure poverty, we'd find that about 28 percent of American families of four are now living in poverty.

The Census Bureau recently released a highly-anticipated report suggesting ways to improve the measurement of poverty in America. It found that adjusting for medical expenses, the value of benefits payments, regional differences in the cost of living, and other technical factors raised the poverty rate to 16 percent, up from the official count of 15.1 percent.

Needless to say, the new numbers are controversial. Advocacy groups tend to push for measurement changes that make more families eligible for benefits, while conservative organizations like the Heritage Foundation argue aggressively that the poverty line is already set too high.

The truth is that even the 16 percent revised figure is way too low.

The poverty line we use today — official or recently revised — was fixed in 1969. Economists and social statisticians can debate whether or not it is a good measure of poverty, but good or bad it represents more or less what people in 1969 considered the minimum decent standard of living. Since 1969, the poverty line has been updated every year for changes in the cost of living (inflation).

It has not been updated for changes in the standard of living.

As a result, when we say that a family lives in poverty today, what we really mean is that that family lives in what was considered to be poverty in 1969. The standard of living represented by the poverty line hasn't changed. According to the Census Bureau, 46.2 million (official definition) or 49.1 million (revised definition) Americans live in what was considered poverty in 1969.

The official poverty line for a family of four is $22,350. Updating that figure for growth in U.S. national income per capita since 1969 would yield a 2011 poverty line of $46,651. By that standard, about 28 percent of American families of four are now living in poverty, almost twice the official poverty rate. If that sounds high, it's only because we are much more stingy today than our grandparents were in 1969.

This year is 2011, not 1969. The tortured technical debate over poverty measurement misses the point. However we measure it, our standard of what constitutes a decent standard of income should be higher in 2011 than it was in 1969. Our accepted poverty line is now 42 years out of date.

How long will it take before we accept that a 1969 poverty standard is just too old? It's already too old. Human dignity requires that people today live better than people lived in 1969. Even poor people.

Salvatore Babones, an Institute for Policy Studies associate fellow, is a senior lecturer in Sociology & Social Policy at the University of Sydney.

Real U.S. Inflation Rate=8%—Obama Says “only” 3%

Obama lied about death panels, jobs and taxes. He lied when he said you
could keep your own doctor. He is now doubling and tripling the cost of health
care for the military—to force them into HIS death panel ObamaCare.

Obama lies about the unemployment rate by refusing to admit 11 million more
Americans are unemployed.

Now he has been caught lying about the inflation rate.

“This weighting results in a 2011 average annual inflation rate of 8 percent
as measured by the Everyday Price Index, compared to a mere 3.1 percent from the
CPI. (The unweighted EPI inflation rate for 2011 was 7.2 percent, as reported in
the last issue
of the Economic Bulletin.)

Besides weighting, another factor that impacts long-term analysis is the
emergence of new products and services. In 1997, the BLS significantly changed
the list of goods and services that make up the CPI. Many new products, such as
mobile phones, movie discs, and Internet services, were added. Other products
were reclassified into new categories. Instead of tracking the cost of a
long-distance phone call, for example, the new classification simply tracks the
cost of telephone services. This partly reflects the emergence of long-distance
telephone plans that no longer charged per minute but rather used a fixed
fee.”

Do we believe Obama or the prices we pay for goods and services?
Guess Obama thinks because he was elected in 2008 Americans have a permanent
case of the “stupids”.

Technology and globalization have restrained prices on big-ticket
items. But they caused fewer price breaks for frequently purchased goods.
Toothpaste ain’t so high-tech.

AIER developed the Everyday Price Index (EPI) to address the widespread
perception that the Consumer Price Index (CPI) does not reflect the day-to-day
experience of Americans. As we continue to study and refine the EPI, we find
that the divergence between inflation measured by the CPI and an index that
measures direct experience is mostly a product of 21st-century changes in the
economy.

To uncover these trends, we extended the EPI series to 1987. One of the
challenges with comparing price levels over longer periods is that people change
their buying behavior over time. The Bureau of Labor Statistics periodically
uses a survey to capture these changes. In common terms, the economists at the
bureau ask people what they buy and then adjust the CPI shopping list
accordingly. They do this infrequently to capture longer-term shifts in consumer
behavior, rather than changes caused by short-term price reactions.

For example, in the early 1980s, medical studies and a general increased
interest in health led people to consume less beef and more chicken and fish.
They also became more likely to join health clubs. In addition, as incomes
increased, people chose to eat out more and eat at home less. BLS surveys picked
up these trends, and the bureau adjusted the CPI accordingly.

In the shorter and intermediate terms, when people are faced with a higher
price for an item, they simply buy less of it. Eventually, they may substitute
cheaper goods. These effects are fairly small, but can add up over time.

To address this, we have revised the Everyday Price Index to allow for
constantly adjusting weights. Weights are simply the proportion of your total
expenditure that you spend on each good or service you purchase each month.
Dynamic weights allow for day-to-day changes in consumer behavior related to
price changes.

This weighting results in a 2011 average annual inflation rate of 8 percent
as measured by the Everyday Price Index, compared to a mere 3.1 percent from the
CPI. (The unweighted EPI inflation rate for 2011 was 7.2 percent, as reported in
the last issue
of the Economic Bulletin.)

Besides weighting, another factor that impacts long-term analysis is the
emergence of new products and services. In 1997, the BLS significantly changed
the list of goods and services that make up the CPI. Many new products, such as
mobile phones, movie discs, and Internet services, were added. Other products
were reclassified into new categories. Instead of tracking the cost of a
long-distance phone call, for example, the new classification simply tracks the
cost of telephone services. This partly reflects the emergence of long-distance
telephone plans that no longer charged per minute but rather used a fixed
fee.

Because of this reclassification, the categories that make up the CPI, and
consequently the EPI, are different before and after 1998. This affected the EPI
in two ways.

In 1998, two new categories were added to the EPI. One is
communication, which includes telephone services, Internet services,
and electronic information providers. The other is child care and nursery
school fees, which were not collected prior to 1998.

Secondly, new types of products and services were added to the
recreation category. Among the new inclusions were club dues for
participant sports and movie discs and rentals. Price data for these types of
goods and services were not collected in earlier years. Changes in composition
are a common and unavoidable feature of any price index. But in this case, they
mean that the set of everyday products that make up the EPI in 2011 has changed
somewhat from the set of products that made up the EPI in 1990.

Chart 1 on, right, shows that the CPI and EPI trended closely until around
the early years of the last decade. (Both indices are set to 100 in January 1987
to ease comparison.) After 2002, the prices of everyday goods and services began
to increase faster than the overall price level, becoming much more
volatile.

From January 1987 to December 2011, the CPI roughly doubled: it increased
from 100 to 202.9. During the same time, the EPI increased substantially
more—from 100 to 234.5. This translates into an inflation rate of about 2.9 per
year on average for the CPI and 3.6 per year on average for the EPI.

There are several possible reasons for the divergence of the two indices that
came about in the early 2000s. Rapid technological change restrained prices of
products, especially those related to information technology. Quality-adjusted
prices for mobile phones, personal computers, and televisions fell or increased
much more slowly than prices of other consumer goods and services. The same was
true for household appliances and even cars. At the same time, increasing
globalization and reduction in trade restrictions drove down prices of apparel
and other imported goods.

These prices, which are included in the CPI, helped restrain growth in the
overall cost of living. But the prices are for products AIER deliberately
excludes from the EPI. The price-reducing force of technological improvements
and globalization does not restrain prices of everyday purchases quite as much
as it does for less frequently purchased items. Toothpaste ain’t so
high-tech.

Over the past thirty years, the modern workplace has radically changed, and the demands on those making the transition from the classroom to the workforce continue to rise. Students from Birmingham and Boston no longer compete against each other for jobs; instead, their rivals are well-educated students from Sydney and Singapore. But as globalization has progressed, American educational progress has stagnated. Today, the United States’ high school graduation rate ranks near the bottom among developed nations belonging to the Organisation for Economic Co-operation and Development (OECD). And on virtually every international assessment of academic proficiency, American secondary school students’ performance varies from mediocre to poor. Given that human capital is a prerequisite for success in the global economy, U.S. economic competitiveness is unsustainable with poorly prepared students feeding into the workforce. The United States has substantial inequities in achievement across the country, and international surveys show that the performance gap between the most- and least-proficient students in the United States is among the highest of all OECD countries (Kirsch et al. 2007). Despite the myth that other countries achieve only because they have small, homogenous student populations, data shows that many countries’ schools successfully assimilate immigrant or high-poverty populations that are proportionately larger than those in the United States. American schools, on the other hand, do little to mitigate the barriers that these groups face (OECD 2007b). Moreover, the rapidly growing minority populations that represent a disproportionate share of America’s lowest-achieving students are projected to make up more than half of the U.S. population by 2050 (United States Census Bureau 2004). Unless the United States begins to prepare

all students for college and the modern workplace, America’s disturbing downward trend will only get worse.

The following details how fifteen-year-old students from the United States compare with fifteen-year-olds in other OECD member countries in the Programme for International Student Achievement (PISA) measures of academic proficiency.*

*

PISA is a triennial assessment that the OECD administers to students in its member and partner countries. It is the world’s most comprehensive and rigorous comparison of international student achievement; participating countries make up nearly 90 percent of the world’s economy (OECD 2007b). Results presented in this fact sheet are, unless otherwise noted, from the most recent PISA, administered to students in 2006.

Reading Literacy

In 2003, the United States ranked 15th of 29 OECD countries in reading literacy, and with a score of 495, came in near the OECD average of 500 (U.S. Department of Education. National Center for Education Statistics 2004). However, a printing error invalidated the U.S. reading section of the 2006 PISA assessment, so the current U.S. standing is unknown.

Scientific Literacy

The United States ranks 21

st of 30 OECD countries in scientific literacy, and the U.S. score of 489 fell below the OECD average of 500 (OECD 2007b).

One quarter (24.4 percent) of U.S. fifteen-year-olds do not reach the baseline level of science achievement. This is the level at which students begin to demonstrate the science competencies that will enable them to use science and technology in life situations (OECD 2007b).

2

Mathematics Literacy

The United States ranks 25th of 30 OECD countries in mathematics literacy, and the average score of 474 fell well below the OECD average of 498. Scores have not measurably changed since 2003, when the United States ranked 24th of 29 countries (OECD 2007b).

Over one quarter (28.1 percent) of American fifteen-year-olds performed below the baseline level of mathematics proficiency at which students begin to demonstrate the kind of skills that enable them to use mathematics actively in daily life (OECD 2007b).

Problem Solving

In 2003, the U.S. ranked 24th of 29 OECD countries in problem solving, and the average score of 477 fell well below the OECD average of 500 (OECD 2004).

Half of American students fell below the threshold of problem-solving skills considered necessary to meet emerging workforce demands (OECD 2004). National surveys corroborate this finding; for example, 46 percent of American manufacturers say that their employees have inadequate problem-solving skills (NAM 2005).

Equity in Achievement

The United States has an average number of students who perform at the highest proficiency levels, but a much larger proportion who perform at the lowest levels. The United States is the only member country to have relatively high proportions of both top and bottom performers (OECD 2007b).

Although American white students’ average science score of 523 ranked above the OECD average, Hispanic American (439), American Indian and Native Alaskan (436), and African American (409) students all fell far below (U.S. Department of Education. National Center for Education Statistics 2007). These groups scored similarly to the national averages of Turkey and Mexico, the two lowest-performing OECD member countries.

The difference between the science scores of two students of different socioeconomic backgrounds is higher in the United States than in almost any other country (OECD 2007b).

First-generation immigrant students in the United States lag an average of 57 points behind their native counterparts, which is the equivalent of nearly two years of schooling. Second-generation U.S. immigrants perform no better than first-generation immigrant students (OECD 2007b).

Four of the five member countries that have higher proportions of immigrants than the United States also have higher national scores than the United States (OECD 2007b).

References

Kirsch, I., H. Braun, K. Yamamoto, and A. Sum. 2007.

America’s perfect storm: Three forces changing our nation’s future. Princeton, NJ: Educational Testing Service. National Association of Manufacturers [NAM], The Manufacturing Institute, and Deloitte Consulting LLC. 2005. 2005 skills gap report: A survey of the American manufacturing workforce. Washington, DC: Author. Organisation for Economic Co-operation and Development [OECD]. 2007. PISA 2006: Science competencies for tomorrow’s world. Paris: Author. ———. 2004. Problem solving for tomorrow’s world: First measures of cross-curricular competencies from PISA 2003. Paris: Author. United States Census Bureau. 2004. U.S. interim projections by age, sex, race, and Hispanic origin. U.S. Department of Education. National Center for Education Statistics. 2007. Highlights from PISA 2006: Performance of U.S. 15-year-old students in science and mathematics literacy in an international context (NCES 2008–016). Washington, DC: Author. U.S. Department of Education. National Center for Education Statistics. 2004. International outcomes of learning in mathematics literacy and problem solving: PISA 2003 results from the U.S. perspective. (NCES 2005–003). Washington,